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Debt Consolidation and. Debt Settlement: Which is the Better Option?

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Debt Consolidation or. the Debt Settlement Method: Which is the Better Option?

The debt consolidation and the debt settlement each have their pros as well as cons. The best option for you is based on your specific circumstances.

by Sean Pyles Senior Writer | Personal finance and credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the host and producer of NerdWallet’s “Smart Money” podcast. On “Smart Money,” Sean talks with Nerds on the NerdWallet Content team to answer the questions of listeners about their personal finances. With a particular focus on sensible and actionable money advice, Sean provides real-world guidance that will help consumers improve their financial lives. Beyond answering listeners’ money concerns on “Smart Money” Sean also interviews guests outside of NerdWallet and produces special segments that explore subjects like the racial inequality gap as well as how to get started investing, and the history for student loans.

Before Sean lead podcasting at NerdWallet the company, he also wrote about topics concerning consumer debt. His work has appeared in USA Today, The New York Times and other publications. When he’s not writing about personal finances, Sean can be found playing in his garden, going on walks, or taking his dog on long walks. He lives in Ocean Shores, Washington.

Aug 5 2021

Edited by Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, debt and money management Kathy Hinson leads the core personal finance team at NerdWallet. In the past, she worked for 18 years working at The Oregonian in Portland in capacities such as chief of the copy desk and team leader for design and editing. Prior experience includes the editing of copy and news for several Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in mass communications and journalism at the University of Iowa.

The majority or all of the products featured here come from our partners who compensate us. This affects the products we write about and where and how the product is featured on a page. However, this does not influence our evaluations. Our opinions are entirely our own. Here is a list of and .

You’re trying to pay down . Do you need to use debt consolidation instead of debt settlement?

They may sound similar They sound similar, but they refer to two different thingsand both can cause more trouble for you.

It’s time to cut your debt

Join the link to sign up and monitor everything from cards to mortgages in one place.

Debt consolidation

In this case, several debts are rolled into a single one. It is possible to use a balance transfer credit card, , home-equity loan and 401(k) loan.

What are the reasons to choose it:

For lower interest rates than you’re paying now, that will help you save money and can help you pay off your debt sooner

To reduce the amount of payments you’re making

When your debt that you’re trying to get rid of is in a manageable size and the debt is of a manageable size,

• How to pay off your debt:

Debt settlement

This is risky since you hold back payments from a creditor and then, once your account is seriously delinquent attempt to negotiate a lesser amount to pay off the debt.

But withholding payment trashes your credit scores and opens you to being sued for payment. There’s no guarantee that the creditor will accept a settlement.

You can try or hire a company, but beware that this industry is full with shady players. A Federal Trade Commission recently ordered 11 of these companies to stop their advertising, claiming that they took tens of millions of dollars from consumers , and provided them little benefit.

Why you might choose it:

Try this only if you have an account that is long-delinquent, or is in trouble an insolvency situation, and you think that the creditor might take a partial installment. There’s nothing to lose since the damage is already taken care of.

Author bios: Sean Pyles is the executive producer and host on NerdWallet’s Smart Money podcast. His writing has been featured on The New York Times, USA Today and elsewhere.

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